Nationwide, Britain’s biggest building society, has admitted that its annual profits were only a third of what they could have been because of the way it worded mortage contracts.
The building society could have earned itself an additional £450 million in annual profits were it not for the fact that 530,000 of its
mortgage customers are paying a standard
mortgage rate of just 2.5% because of a clause that commits the bank to charging only 2% over base rate to any customer who reverts to its base
mortgage rate.
Most other
mortgage lenders require their customers to revert to an interest rate that is typically over 4% when their fixed rate
mortgage deals expire.
The reason Nationwide introduced the 2% rate in 2001 was to qualify for a government-sponsored CAT scheme, a measure of quality. The scheme never caught on but Nationwide continued to include the 2% over base rate clause in some new
mortgage deals until the middle of 2009.
Nationwide’s chief executive Graham Beale said that the clause could affect profits for years to come, although he was confident of retaining his
mortgage customers: “In the current market, it’s highly attractive,” he said. “Obviously people will eventually pay off their
mortgages but it will take time to wash through.”
